Investors Appear Satisfied With Satellogic Inc.'s (NASDAQ:SATL) Prospects As Shares Rocket 27%
Satellogic Inc. (NASDAQ:SATL) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.
After such a large jump in price, you could be forgiven for thinking Satellogic is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 18.9x, considering almost half the companies in the United States' Aerospace & Defense industry have P/S ratios below 3.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
See our latest analysis for Satellogic
What Does Satellogic's Recent Performance Look Like?
As an illustration, revenue has deteriorated at Satellogic over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Satellogic will help you shine a light on its historical performance.How Is Satellogic's Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Satellogic's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.3%. Even so, admirably revenue has lifted 152% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 9.4% shows it's noticeably more attractive.
With this information, we can see why Satellogic is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Key Takeaway
Shares in Satellogic have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
We've established that Satellogic maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we've spotted 5 warning signs for Satellogic you should be aware of, and 3 of them don't sit too well with us.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.